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Definition: Education IRA
Education Individual Retirement Arrangement (Education IRA) is an arrangement which allows for the provision of payment of higher education expenses of a beneficiary under the age of 18 at the time of creation of the education IRA account. The trustee must be an IRS approved bank or body.
Both the guardian and the child can make the contributions but to a maximum total of $500 per year and these contributions cannot be made as life insurance investments or combined with other property investments. The benefits provided using this provision includes tuition fees, cost of study material and equipment and rental or hostel fees. All the colleges recognized under the department of education are allowed for the provision to be availed.
The educational expenses when withdrawn are non-taxable if the withdrawn amount does not exceed the expenses of the eligible educational institution.
Educational IRA can be contributed by any person whose modified adjusted gross income for any year is less than$110,000 ($160,000 for married taxpayers filing jointly) and any number of educational IRAs can be made for a particular beneficiary until the maximum contribution for a particular year is attained.